Sunday, 1 May 2011

Creating More 'Working Poor' In The UK

I know that my belief, that the current prime minister has an agenda to push the structure of British society back to the pattern it had a century ago, is not widely held. However, even if you do not believe that changes to the education system, taxation and benefits are not designed to cut off opportunities for ordinary people and to protect access by the elites to such opportunities, especially in terms of education, the change in society is happening anyway. I noted back in 2008: http://rooksmoor.blogspot.com/2008/07/unemployment-as-whip.html and in 2009: http://rooksmoor.blogspot.com/2009/09/cracking-whip-of-unemployment.html that there was a desire among employers to increase unemployment because they felt that the period of prosperity of the previous ten years had led to pay rising too high and workers not being sufficiently grateful for the jobs they had. This has come about now and you can see it in the reduced salaries being offered. Back in 2001 I worked on projects in an office, I had no staff to supervise and was paid £24,000 per year (now equivalent to €27,800: US$38,100) and on that salary was able to rent a 2-bedroomed flat in walking distance of my work (for £500 per month) and to buy a small second-hand car and go on holiday once per year. I was not in a position to buy a flat. By the time I left that job in 2005, I was earning £31,000 per year. In my last job that finished in 2010, I managed two offices and for that was paid £42,000 per year (€48,700; US$66,700), which allowed me to drive a larger second-hand car and in combination with another person, to pay the mortgage on a three-bedroomed house in southern England. It did not permit me to go on holiday at all.

Now, as I look for work, still, as an office manager, I find that salaries are lower even than what I was being paid simply to be an office worker back in 2001. I will take Southampton as an example. It is a large, rapidly growing town of around 230,000 people, located at the western edge of the South-East region of England. Using the official Department for Work & Pensions website to look for jobs, I found that last month the average salary for an office manager is now £23,000, though with some explicitly office manager posts paying as low as £12-18,000. If you want to earn £24,000 then you need not only to have had office manager experience but also to speak fluent Spanish and Chinese. If you can speak fluent Chinese there are opportunities for you around the world at the moment, not simply managing an office in a dull second-rank town in England. It is worthwhile comparing the salaries with the rents in the local area. Southampton is a cheap town to live in. You can rent studio flats (i.e. without a separate bedroom, you sleep in the living area) for £350 per month (compared to £525 per month as the norm for a studio flat, just 21Km away in Winchester).

Now, if you were starting on £12,000 per year before tax, then over a third of your pre-tax income would be going on simply renting a room. You can pay £280 per month if you are willing to rent a room in a shared house or as a lodger. Even if you get promoted and take the £18,000 then it is still a fifth of your pre-tax income, just on housing. This does not include your food, utilities and travelling costs. So, with such a job you can cover your expenditure, but with no hope of a holiday or buying a car or ever owning a flat on that kind of income. Banks generally lend you around three times your income, meaning even at the top salary for that office manager role you would only be lent £54,000 about enough to buy a one-bedroomed flat or a two-bedroomed static caravan in Southampton.

Perhaps I am being hard, because it is possible to live on such salaries, but I have left out all the other costs of life bar accommodation and in the UK it is easy for a single person to spend around £30-40 per week on food, taking another £1500-2000 out of your earnings each year. In addition, you have to remember this is the salary for the office manager, I have no idea what the staff that manager supervises must be earning. The only people who can take such jobs are those who live at home on nominal rent to their parents. I guess such young people are really the only ones companies are interested in which is why, at 43, I have been unemployed for so long. What is frightening is that David Cameron has sworn to make sure that you will always be better off in work than on benefits. With salaries dropping away so fast, the only way to achieve this will be to reduce benefits to pauper levels.

Another factor is that working hours are lengthening. In my search for an office manager post, I found they all expected you to work 08.30-17.30 rather than the traditional, '9 to 5', i.e. 09.00-17.00. This means a 45-hour week, or 40-42.5 hours if you remove lunch breaks rather than the 35-37.5 hours per week that were becoming the norm even in the 1990s. This means the hourly rate in fact falls by an eighth, over what it would have been. Many jobs now include a caveat about the need for evening and weekend working, effectively a get-out clause to compel you to work, in fact, any hours the employer deems necessary. Of course, we have to accept such conditions because the alternative is unemployment with a low level of benefits.

On one hand, advertising and social pressure encourages us to consume and aspire to better items and owning our own houses. However, with incomes falling this becomes even more of a fantasy than ever. The only item of clothing I have purchased in the last 18 months was a £14 pair of shoes from Asda to wear to interviews and this was only because there was a hole in the sole of my other pair that let in water no matter how much cardboard I put in the bottom. How can I aspire even to buy some new clothes let alone think about a new car or a holiday or a new mobile phone? I have had to leave the house I owned to return to the rental sector because I cannot pay a mortgage and am likely never to be able to do so again; meaning my poverty when I retire is now guaranteed. I am not a person without qualifications. I got a degree when only 6% of the population attended university. I have years of experience and professional training. What hope is there for people with less than that?

I have noted before how that UK society seems to be being pushed to resemble ever more that of the USA. The cutting back of the National Health Service is moving us in the opposite direction to what the Obama administration is seeking to do with health care and more towards the kind of privatised health system that his Republican opponents vigorously insist on. We also seem to be moving very rapidly towards having the 'working poor' forming a significant part of our society. In the USA working poor are defined as being people who have worked at least 27 weeks of the year but whose income falls below the poverty level. In the USA in 2005, 2.8 million families (made up of 12.2 million people) had a household income of 100% less than the poverty level; in addition, 9.6 million familieswith work, about 29% of them, were earning 200% less than the poverty level, a level at which they are deemed not to be self-sufficient of welfare or charity. To give you an idea of the level, self-sufficiency was deemed to be an annual family income of US$39,942 (currently equivalent to £25,120) for a family of four.

In the EU poverty-in-work is defined as being 60% of the median, not mean, income. In the UK, median income for men in 2010 was £538 and for women £439, thus poverty is earning less than £322 per week if you are a man and less than £263 per week if you are a woman. Being paid £322 is equivalent to £16,700 per year. Thus, the office manager job discussed above, means that your pay is at poverty levels, if you are man, until you rise £4,000 above the basic level. By definition, all the workers you manage will be in poverty and remain in it in that position. In 2010 it was stated that 1.7 million children in poverty in the UK were in families that had work, with 1.1 million in families without work. There were 2.1 million working families in the working poor category and it was anticipated that 8% of the population, around 4.8 million people, were at risk of falling into this category. We are not talking about people on benefits or retired, they are further categories of people in poverty, these are people actually in jobs but earning so little that they are deemed to be poor.

There has been rhetoric around the 'squeezed middle' especially from the Labour Party. However, with a lack of regulation of companies' behaviour and, certainly, no attempt to shift pay levels above the minimum wage, to any higher level, there is no clear idea how they will be able to do anything to alter the situation for ordinary people. I know Labour would shy away from setting salary levels as it would seem too much like wages and incomes policies of the 1970s, which they now find embarrassing. Ironically, those policies were to keep down pay rises, whereas now we need to see pay rising. Raising the threshold at which you pay tax is one approach, one favoured by the Liberal Democrats before they went into government. However, to a great degree this takes pressure off employers who can continue to pay low salaries to everyone (except the top executives, of course). I have outlined an idea of having the highest salary in a company always kept to a certain ratio to the lowest and I believe that, without at least indications of minimum expected salaries right up the structure of companies, then you will never eliminate the tendency in the UK for pay to pushed downwards for most workers whilst it rises inexorably for the already wealthy.

You could argue that leading economies need cheap labour to prosper and this is one reason why China is booming at present, as, for every high-earning fashion company executive in Shanghai there are thousands, probably tens of thousands of very low-paid textile workers. Before the minimum wage was introduced to the UK in 1999, there were complaints from companies and the Conservative Party that it would lead to job losses. However, this never appeared and this is for a number of reasons. One is the large profit margins that so many companies maintain selling or providing services in the UK. Another is that the pay of high executives is so high that even cutting it back by a few percent frees up sufficient funds to pay a lot of low-paid staff. Another reason is that paying decent pay levels benefits the economy. Anyone who lived in a poor area, as I did in 1999 in East London, noticed immediately how small businesses benefited from the minimum wage. Some people saw their weekly pay almost double and they went out and spent it on the basic things that they had previously gone without. There are a lot of low paid people so a change in their income makes a bigger impact than shifting that of the far fewer high-paid people: there are only so many white goods you can fit, even in a mansion, and only so many meals you can eat. I certainly believe that the UK's supermarket chains would not have prospered to the extent that they have done if the minimum wage had not been introduced.

There seems to be a lack of basic knowledge in government about how a capitalist economy works. The UK economy was at its strongest, not in the 1920s and 1930s, times of high unemployment and low wages, but in the 1950s and 1960s with periods of very low unemployment and rising incomes. The UK economy will continue to be weak now, as long as the numbers of working poor remains high and, especially, as it rises. These people will lack the ability to consume the products that keep so much of our extensive service sector running. Of course, the UK does not manufacture much these days and imports large quantities of food, but even selling foreign goods keeps companies like Tesco, one of the cornerstones of the UK economy, thriving and, in turn, employing more people.

Poverty makes people desperate, they are far more likely to become corrupt or steal from their employers. You can see this in countries with capitalism but a great disparity between rich and poor. Try travelling on public transport in India or Tunisia or seeking planning permission in many South American states. The UK has corruption, but generally in the public-facing civil service and most companies, it is very limited. However, if you increase the number of people in work who cannot afford to live even a meagre life, then you are driving them towards corruption. Countries like China deal with it by having a harsh, totalitarian police state. You might think this would be an option for the UK, but interestingly, the Conservatives, to their credit, have begun to reverse the assault on human rights that was seen under the Blair and Brown governments and, ironically, to compel cutbacks in police numbers. Thus, the UK will have an economic pattern that promotes corruption but does not have the police strength to suppress it.

I believe that the current governement's stance is to encourage cheap, malleable labour of the kind employers of the 19th century could draw upon and dispose of at will. I quite anticipate that characteristics of 19th century employment, such as tied accommodation, even live-in servants, will begin to re-appear. I have already noted that dated modes of living such as lodging are on the increase once more. You may contest that Cameron and his gang have any intention of retro-engineering UK society. It does not really matter if you accept it or not. What is more crucial is that, if the numbers of working poor continue to rise, then domestic consumption will be pitiful and the UK will be condemned to a weak economy into the coming decades. Capitalism works on the basis of supply and demand, if you choke off demand as poverty does, then the cycle begins to break down and small numbers of ultra-wealthy people have far less impact than millions of comfortably well-off ones.